Home Buying in Coral Springs>Question Details

Or30313, Home Buyer in Plantation, FL

As a buyer, should I refuse backup offers on a short sale purchase?

Asked by Or30313, Plantation, FL Wed Feb 23, 2011

I put an offer on a home. I'm preapproved on the home and have great finances. My offer is very reasonable -- although I haven't had an appraisal yet, I believe our offer is very close to the home's value if it weren't a distressed sale. We just really like the house; we're definitely not low-balling.

Our offer was accepted, but we're stuck on the Short Sale Addendum. I don't want them to accept back-up offers. My concern is that I'll wait two months to hear back from the lender and the selling agent will continue to market the home during that time. Then, right before the seller receives the bank approval a backup offer will come in that is $10k or $20k more than ours. Then, the bank will reject our offer to take the next higher offer.

In the mean time, we have waited 2 months only to be bumped off at the last minute.

Are my concern valid? Should I insist that backup offers not be allowed?

Help the community by answering this question:

Answers

23
BEST ANSWER
Okay, I had another thought... I'm in the Tampa Bay area and our Realtor MLS system requires a short sale listing to be immediately moved to "pending" once the seller signs a contract--even if "backups" are allowed. I'm not familiar with the Broward County MLS system and maybe there is a provision that allows the listing to remain in "active" status on the MLS IF the short sale addendum says the seller can accept backups.

The listing agent may simply want to continue fishing for leads and has no intention of kicking you out of the contract.

I don't worry about getting backups and in fact most short sellers do not want to be bothered by showings once they have a contract submitted to a lender. In the event the current contract doesn't work out, if let's say, the bank counters at a price that buyer isn't willing to pay...it's not a big deal because we can then update the MLS with the "approved" price by the lender and another buyer usually steps in quickly.

Sounds like you're dealing directly with the listing agent... it's not recommended on a Short Sale because lenders prefer to see two separate agents and in fact some negotiators for the lenders will reduce the commission in half to the listing agent so there is no incentive to work with a non-represented buyer. I do not represent buyers on my short sale listings and require them to get their own agent. That way it doesn't injure my Seller's chances for Short Sale approval because it gives a better appearance of an Arms Length Transaction.

If you're not already working with a Realtor, find one to help you to continue to "shop" and write other cancellable offers on Short Sales. Do not put up any earnest money so they can't hold your deposit hostage. Also you need email notice of any properties that meet your criteria (especially bank owned) so you can get out to the property the "same day" it comes on the market so you do not lose out on the best deals--bank owned. They do not have "ficticious" asking prices like non-approved short sales do. Don't even think you'll get a better deal by contacting the listing agent on a bank owned because by the time they call you back, the best deals will already be under contract by an agent that submitted their client's offer the same day.

Also in case you're not aware...you should plan on having to pay to have utilities put on for your inspections because by the time you get approval for the short sale, the owner/tenant may have long vacated the house. It may sit for months without electricity in the humid florida weather so be prepared to do a little mold remediation, too. Also even if the appliances and light fixtures and window treatments are included in the contract, don't count on them being there when you do your final walk through after you've already paid for an inspection, appraisal, etc. This is the reason why you MUST get a below market price on a Short Sale.

Also go find out which lender actually owns the 1st and 2nd mortgage. Wachovia is most likely a mere "middleman" for the underlying investors that own the mortgages. You can do a lookup on MERS to see if the first is shown there:

https://www.mers-servicerid.org/sis/

If it doesn't appear on MERS , the 1st mortgage is probably owned by Fannie Mae or Freddie Mac. The unfortunate thing is the 2nd mortgage must also approve the short sale and I've seen unreasonable sale price requirements by the 2nd mortgage lender and also the Seller may have to bring money to closing or sign a "promissory" note.

Lastly if the house is "owner occupied" the Seller should attempt to get Short Sale approval via the HAFA program because they may be allowed a $3k payment at closing for "relocation". It gives an incentive to a Seller to supply the required financial documents in a timely manner to expedite the short sale. It also puts deadlines on the servicer to perform their tasks in a timely manner. If it is NOT going under HAFA then it may delay the process. Only owner occupied are eligible for HAFA.



Good luck, and again KEEP SHOPPING up until the day you get the approval letter in your hands.

All my best,
Alma
1 vote Thank Flag Link Thu Feb 24, 2011
Yes, strike through the section that allows "backups".

Additionally it would be best if you did not put up any money until/if the short sale ever gets approved.

Many things can go wrong with short sales so it may not be possible for the seller to get a short sale approval. Some Sellers also change their mind and get a loan modification. And... if there is PMI on the mortgage they will also have to approve the sale and oftentimes require the seller to sign a promissory note. some Sellers will then refuse and keep the property. Additionally if the property is not owner-occupied and the Seller realizes the huge tax liability on a Short Sale they may then decide to keep the property.

So with all that said... go ahead and make your offer so that they must immediately move the status to "pending sale" and not accept any "backup" offers.

Most importantly, you need to continue shopping for your new home up until the day you get a copy of the short sale approval letter with your name as the buyer. (note: there are also scammers that get involved in short sale "flips" so this is why you need the approval letter with your name as buyer).

Good luck!
3 votes Thank Flag Link Wed Feb 23, 2011
Alma,

You've been EXTREMELY helpful. Thank you very much for taking the time to provide such detailed and thorough answers.

I have been working with a buyer's agent. She's pretty good, but I generally think she just wants to get a deal done. I'm okay with that as long as she continues to be as responsive to getting me showings and dealing with paperwork. Still, that's why I put so much value in getting answers from unbiased Realtors like those on Trulia -- it's a fantastic resource for buyers and sellers.

In Broward County, you can indeed leave the listing on the MLS as long as they are backup offers are allowed. You're probably right; that's the main reason the listing agent is insists on keeping the home open to backup offers.

Last night, the sellers' agent said that she was firm on allowing backup. So, I'm walking away from the deal.

This whole deal has left a bad taste in my mouth. First the listing agent tried to mandate that my inspection be done prior to lender approval. Then, she insisted on $2,500 earnest money (something my buyers' agent said she never sees). Then, she wouldn't budge on the backup offer issue despite my preapproval and very decent offer.

In this environment (especially in Broward County), it seem ridiculous that a selling agent would be so inflexible with a well-qualified, motivated buyer. Oh well. The good news is that there are dozens of other great deals out there right now -- there's no reason for me to deal with anyone that won't be flexible with reasonable requests.

Today, my wife and I are going to look at two different homes -- both good deals (maybe better than the home discussed in my original post).
1 vote Thank Flag Link Thu Feb 24, 2011
First of all your offer is only accepted by the seller, not the bank so there is no contract yet. You have just an offer on the table and therefor there is no need for backup offers. You only have back up offers when there is a contract in a primary position and so far there is none. You can write several offers and others can write offers too, the bank will pick the one they want and kick out all others when they feel like it. There are almost no rules in short sales except the bank is the driver and buyer and seller are in the back seat. Your offer is no better than anyone else's so make yours the best you can and the bank may except it.

I agree with Alma, give no money to your agent until the bank accepts your offer, and keep looking.
1 vote Thank Flag Link Wed Feb 23, 2011
Hi Again,

Okay, the important thing to remember in a Short Sale is the Seller has 100% control over whose offer will get submitted to Wachovia for approval, so whatever you do, try not to upset the Seller in any way. The Seller doesn't even have to accept the highest offer, they can go with someone they like rather than the highest offer. Also listing agents have a lot of influence so also treat them like gold, too.

Normally from my experience we only submit one contract to the lender. Otherwise it's slows everything down and can add problems to the transaction.

You may not have to worry about "backups" provided you also have the ability to cancel the contract for any reason up to a week after you get the approval and you've done your inspections. Would not be prudent to agree to the time periods starting earlier than the day you get the approval letter. It's unreasonable for them to ask you to put out money for inspections and appraisal when you have no assurances you will actually get to buy it for the price you're willing to pay! You MUST have the ability to cancel up until the 7 days after you the written approval. This may be a tactic to try to take your earnest deposit! Proceed with caution!
0 votes Thank Flag Link Wed Feb 23, 2011
I dont think the selling agent will accept your condition not to accept back up offers best thing will be to bid max you have in mind since you like the property and make that offer time constrained best of luck
0 votes Thank Flag Link Wed Feb 23, 2011
Alma,

This is what happened: I submitted my original offer with a standard Florida short sale addendum (SSA-3). On it, I requested (1) no backup offers unless required by the lender, and (2) that all time periods start when the contract is approved by the lender.

The seller "agreed" to my offer, but altered my SSA-3 by allowing backup offers and starting the time period immediately. They also required $2,500 in earnest money. I agreed to the latter (I can afford to tie up $2,500 for 6+ months), but there was no way I was going to agree to the time period because it would forced me to complete a inspection BEFORE lender approval. I also was not comfortable with the backup offers. So, I turned it down.

Today, the listing agent sent me back a newly created addedum. Instead of it being on an SSA-3, she completed a new form using the Short Sale Contigency language on Florida "Comprehensive Rider to Residential Contract for Sale and Purchase" (CR-1). She changed the time period as I requested, but did not alter the backup offer provision.

Based on what you guys have posted here and talking with a RE attorney (a buddy of mine), I told the listing agent to either accept my original SSA-3 addendum or I am walking.

I am waiting to hear back.

As for your question on PMI: The sellers have an 80/20 loan with Wachovia. So, PMI is not in the picture.

And that's what has me concerned with the motives of the listing agent. This short sale is through Wachovia which is famous for being very fast with short sale approvals. Why is the listing agent so insistent on the backup provisions if the lender is Wachovia (based on meeting the actual seller, I have little doubt that the backup offer issue is exclusively being driven by the listing agent and not the seller)? The whole thing seems fishy to me. So, I'm sticking to my guns.
0 votes Thank Flag Link Wed Feb 23, 2011
There is certainly good opportunity for unscrupulous Listing Agents to take advantage of "Multible offers". I've seen it done w/o a Multible offer form after acceptance with the Home owner/Seller...

But who gave you "acceptance"? Because prior to the Bank giving you acceptance IN WRITING You really have nothing... (well, nothing that you can essentially inforce anyway...)

As far as "Back up offers" you cannot prevent an agent from "taking" back up offers. If you have acceptance from the Home owner Seller, the Listing Agent should not "Present" anymore offers. But, he/she can take Back up offers all day long.

If the Bank is wanting Multible offers, in my State we must procede with a Multible offer form that specifically asks for you to present your "Best and Highest offer"... But, once again, the Bank is in control of which offer they feel is in their Best interest. -No Bank approval/ acceptance, No Deal...
0 votes Thank Flag Link Wed Feb 23, 2011
Hi Again,

Normally the underlying lenders do not know what the other "backup" offers are. Usually only "one" offer is submitted to the lender. Then if the lender comes back and counteroffers (often happens--especially if there is a Private Mortgage Insurance (PMI) company that also has to approve the short sale) and the buyer in first place rejects it, then they could attempt to resubmit with the backup offer.

The biggest worry is it doesn't sound like you are using a "Standard " Florida Bar/Florida Assn of Realtors Short Sale addendum, based on the wording you just quoted. If you're not using the standard Realtor forms then you ABSOLUTELY need to hire your own attorney to review everything "before" you sign it. This is crucially important if you are paying ALL CASH because you will not have the lender review of the title to protect your interests.

Also it is not advisable to put up an earnest (good faith) deposit unil/if you ever get a short sale approval letter with your name on it as the buyer. Otherwise you may have to resort to legal action to get your deposit returned if the Seller refuses to sign the release to return your deposit! I've seen it happen to buyers working with other Realtors.
0 votes Thank Flag Link Wed Feb 23, 2011
Hi, Your concern is valid. If you have put in a fair offer and the listing agent is good at short sales you should sit back and be patient. You can get a great deal, but do Not let the listing agent think you wont be waiting or they will move on to the next buyer. Maybe you can ask your agent to put in writing that you have the first option of a counter offer from the bank before the bank moves onto backup offers.98% of the banks will only work with one offer at a time if that makes you feel better, they are so busy with all the short sales that they just dont want extra paperwork that will just confuse them. If you are patient you can get a great deal. Good Luck! Tamara
Web Reference: http://TrustTamara.com
0 votes Thank Flag Link Wed Feb 23, 2011
It is an unavoidable request in the Bank addenda, please know for the most part that your acceptance will almost 99% of the time lead to a sale. Please sit back and just wait it out, three months from now it will be a beautiful kitchen table story to tell friends as you sit in your new house!
0 votes Thank Flag Link Wed Feb 23, 2011
Your hands are really tied. I understand your frustration, but most listing agents should let you know right away if they are going to only work with one offer at a time or submit multiply offers to the bank. IF the bank wants all offers submitted even back up offers the listing agent has to submit them. If you have a strong offer and great buying potential then you should be fine. It is a gamble with a short sale, but think about it this way. Buyers want a house so if they know an offer is only waiting on lender approval and they would be in a back up position they may not even bother, because they may feel it is a waste of their time. The house shoud also be in a pending status of some sort in the MLS so most agents may not even show it.
0 votes Thank Flag Link Wed Feb 23, 2011
Let me leave you with a couple of informational links from here on Trulia. Your concerns are Valid for many reasons. (And you will see as you start reading some of these below links...)

Bottom line, you really don't have much when working with a short sale. I would suggest "IF" you have the time to wait, then I would be prepared to offer your BEST and HIGHEST offer. (what ever that is.) Frankly, you cannot control what the Bank "May" do with regards to a Short Sale. If the prospect of Losing that home over 10 or 20k is a concern, and you would actually rather pay 10-20k to not lose it, then i'd say be prepared to offer that amt. before you kick yourself later for waiting it out and losing it over an amt. you really would have paid!
Please Read:
http://www.trulia.com/voices/Home_Buying/I_put_in_a_bid_for_…

http://www.trulia.com/voices/Home_Buying/Who_decides_closing…

http://www.trulia.com/voices/Home_Buying/Seller_accepted_my_…
http://www.trulia.com/voices/Home_Buying/What_are_the_chance…

There are many more available if you Look...

Good Luck with your Purchase, it is a Great time to Buy!
0 votes Thank Flag Link Wed Feb 23, 2011
After all the work that the bank does on each short sale, they are dedicated to working out the deal with the buyer too. The system has been working very well for me as a broker. I ask that the Seller not submit more than one offer to the lender for consideration at a time. I think it screws up the bank's system. They almost don't know how to deal with simultaneous offers. But, absent that request or cooperation, I think the bank is motivated to make a deal work with the "bird in hand". Best of luck.
Web Reference: http://www.wendylucas.com
0 votes Thank Flag Link Wed Feb 23, 2011
I feel your pain. I have had clients go through the same thing. The bummer is that you can't request that the seller not take back up offer. That is actually against the law. It's fraud. The bank holds all the cards and they will require the seller's agent to present all offers. Usually they will require the agent to sign something stating that they will activly market the home until the home closes.

That's the risk with short sales. You will never know if it's going to close until the day it records at the county. I don't deal to much in those anymore simply for the reason you have stated above.

Good luck to you,

Lori Hausler, Broker
Prudential NW Properties
0 votes Thank Flag Link Wed Feb 23, 2011
Yes, even if you have an offer in and the first buyer backs out, the whole process has to begin again. That means they start looking at your financials, then your offer, then they have to get another appraisal. So the 2-3 months that yoiu have waited because you were in a backup position just extends out. If they then decide they want to counter offer you the whole process begins again. My advise would be, place an offer, keep on looking for a home and if you find one remove your shortsale offer.
0 votes Thank Flag Link Wed Feb 23, 2011
Unfortunately all lenders are different. With the lenders that I have dealt with, once you are in first postion you remain there regardless of whether another higher offer comes in. Some lenders may not allow for you to insist that back up offers not be taken. I would verify with your agent what the terms are in your specific situation. As Susan mentioned, most banks don't even want to see the other offers once they have an acceptable one on the table. They are too inundated with all of this that most just don't care. I have only had one short sale that didn't close with my buyer and that was due to the HOA being difficult and in trouble not because other higher offers came in, which they did. Wishes for the best!
0 votes Thank Flag Link Wed Feb 23, 2011
There should be only one offer in at a time. If you were the first offer, you get to deal with the bank whether they will take your offer or want more. If you choose not to make a deal with the bank, it is only then that the back up offer will be allowed to work with the bank. You have no worries :) The realtor should have put into the MLS Active w Contract accepting back ups.
0 votes Thank Flag Link Wed Feb 23, 2011
The good news is that you are in the first position and that you can continue to look for other homes while waiting and withdraw your offer at any time before the bank accepts. Being in the first position, if the bank comes back at a higher price the ethical thing for the listing agent to do is to allow you to increase your offer before moving on to the next offer. Most banks only want the seller to submit one offer. My last short sale as the listing agent was with Suntrust and they told me to chose only one offer - I had multiple offers presented at the same time. They did not even care which one I sent in. The whole key to getting an answer on a short sale is to bring in a buyer. It is a fishing expedition for the seller to see what the bank will accept - the bank will usually not tell the seller anything until they get an offer in writing.

Kudos to you for hanging in there - waiting does pay off. It is important to know if the sellers are doing everything on their end to assist with the sale - such as providing the mounds of documentation required to prove they can no longer afford the house. With lots of pushing from the listing agent it can happen.

Good Luck!
0 votes Thank Flag Link Wed Feb 23, 2011
It seems that you actually do have a ratified contract. It has been accepted by the seller, correct? However, it is contingent upon 3rd party approval. My concern is that, if you don't sign the short sale addendum, the bank will simply reject their approval of your offer if another, better offer comes in. I've seen this happen several times. Just modify your short sale addendum to read that backup offers can be submitted but that you have the first right of refusal (or a chance to increase your offer) in the event that another one comes in. I actually feel that this scenario offers you more protection. The larger banks won't look at other offers until they put the current one to bed but some of the smaller ones do. Hope this helps!
0 votes Thank Flag Link Wed Feb 23, 2011
Pat,

The addendum, as its currently written (I haven't signed it yet), does indeed state that backup offers will be accepted "that are conditioned upon a failure of the Closing."

I know that I'll retain my first position. However, if a backup offer comes in that is $20k more than mine, why wouldn't the lender simply reject my offer and take the backup offer? Obviously, the lender will have knowledge of any backup offers. The lender has zero incentive to accept my offer if any backup offers come in from well-qualified buyers that are above mine. Right?

Also, doesn't the listing agent have the incentive to continue to market the home as long as the sellers let her? Not only does she increase the size of her Roladex, but she can also increase her commision (albeit small). Right?

I almost see no value in having my first position unless I force them to not to allow backup offer.
0 votes Thank Flag Link Wed Feb 23, 2011
If in fact the addendum states they will accept back up offers as long as you perform they can not kick you out of 1st position. I would go over this point with your agents so you truly know what the addendum states.
0 votes Thank Flag Link Wed Feb 23, 2011
Every bank has their own process for handling Short Sales, understanding the process and following the rules will help speed up the transaction. With the number of Short Sales and Foreclosures continuing to increase, this fills the pipeline and slows down the turnaround time. If this is a house you absolutely love, think about how much you are willing to pay for it and consider modifying your offer to state you will match any other offers up to this amount. This will ensure your offer will be the highest up to this dollar amount and any offers over that amount you're not concerned with because you don't feel the house is worth any more than you're top offer.

I would also encourage you to keep looking in the event the bank doesn't accept your offer or who know, you might find a nicer home for a better value.
0 votes Thank Flag Link Wed Feb 23, 2011
Search Advice
Ask our community a question
Email me when…

Learn more

Copyright © 2016 Trulia, Inc. All rights reserved.   |  
Have a question? Visit our Help Center to find the answer